CEO Seeks to be Compensated Under Terms of Contested Contract

It is important for all workers to be aware of, and understand, their rights and obligations under their employment contract, particularly in relation to resignation or termination. Employment agreements will usually outline what an employee can expect as a termination package in the event they are terminated with or without cause. For example, employees who are terminated without cause, they can generally expect notice or compensation in lieu of notice. Therefore, it is important for any worker, particularly those who hold senior positions, to ensure that their employment contract is valid and enforceable.

In a recent decision from the Alberta Court of King’s Bench, the Court considered a situation where an employee who was hired as the Chief Executive Officer of a company resigned from his position and sought to collect payment under the terms of his contract.

Employment contract states CEO will receive payment of $200,000 even if he resigns

In the case of Challis v Maverick Oilfield Services Ltd., the plaintiff employee was hired as the defendant employer’s CEO on June 25, 2012. The parties had reached an oral agreement which was drafted into a contract to reflect the agreed upon terms, however, it was never signed.

A written employment agreement was eventually prepared and signed by the parties in 2017. The 2017 employment contract contained a clause that provided the employee would be paid $200,000 even if his employment ended as a result of termination for cause or the employee chose to resign.

Employer announces bonuses for executives

In 2015, while the employee was working as the CEO, the employer declared that its executives would be granted bonuses. One half of the bonus was given to the employee on the day it was issued, while the other half was to be deferred.

The employee resigned from the company on May 31, 2018, however, the employer refused to pay out the deferred half of the employee’s bonus. The employee subsequently commenced an action seeking summary judgment for payment of severance in the amount of $200,000.00, in addition to payment for the deferred portion of his bonus in the amount of $26,442.31.

Applications Judge grants summary judgment for deferred portion of bonus

When the matter came before the Court, the Applications Judge dismissed the application for summary judgment of the severance. However, the Court granted summary judgment in the amount of $26,442.31 for the deferred portion of the employee’s bonus.

The employer appealed this decision, seeking to retain the portion of the employee’s bonus it was ordered to pay. In turn, the employee responded to the appeal by seeking severance pay. However, before issuing a judgment, the Court had to determine whether an appeal was warranted.

Employer appeals bonus award; employee seeks to appeal severance portion of summary judgment

The Court began its analysis by looking at the employer’s appeal regarding the award of the unpaid bonus. The employee did not file an appeal, but instead maintained his position which was recorded in his brief, in which he sought both the deferred portion of his bonus as well as a severance payment.

The Court, however, found that this was problematic because the employer did not have notice that the employee was seeking to appeal the severance portion of the summary judgement. The employee, in turn, claimed that he was not required to file a notice of appeal because all of the order was subject to appeal. The Court did not agree with the employee’s argument, writing that he misunderstood how appeals from motion judges are handled. The Court went on to find that:

“Having not filed a notice of appeal in respect of the Applications Judge’s decision on the issue of the severance payment, Mr. Challis is not entitled to pursue a remedy in respect of that issue. The appeal therefore proceeded on the issue of the deferred bonus only.”

Factual dispute regarding deferral agreement

The Court then turned to the matter of the deferred bonus payment. The employer’s position was that, based on the verbal agreement between the parties to defer payment, it was not payable until the employer’s company began to generate net income, or in other words, became profitable. The employer claimed that it had yet to generate net income, and as a result, it should not be required to pay the deferred portion of the bonus payment. In the alternative, the employer argued that the employee only had 60 days after the end of the fiscal year to seek the deferred portion of the bonus, and as such, the applicable limitation period had expired.

The employee agreed that the deferral agreement delayed payment of the bonus until the employer’s financial position had improved. However, he contended that it was understood that if an employee left their employment before the event triggering payment occurred, the deferred portion of the bonus would be paid out when that employee’s employment ceased.

Court finds in favour of employee

In arriving at its decision, the Court found that several of the facts in this matter were not in dispute, including that:

• the bonus issued to executive employees was in the amount of $52,884.62;
• the recipients of the bonuses agreed to defer half of it until the company became profitable;
• all employees who received such bonuses agreed to the deferral;
• the company had yet to turn a profit; and
• all of the other recipients who were no longer employed by the employer did in fact receive the other half of their bonus when their employment ended.

On this basis, the Court concluded that any accrued bonus owing to any employee should be paid out upon the termination of their employment, which included payment to the employee. Therefore, the Court made a judgment in favour of the employee and also awarded him costs.

While this was ultimately a successful outcome for the employee, it is important to recognize that had he taken proper steps to ensure that his employment agreement would hold up to scrutiny and submitted a proper appeal, he may have been the recipient of an even more favourable judgment. This decision highlights the importance of working with a trusted employment lawyer to ensure that your employment agreement is fair and sound, particularly in the event that future litigation occurs in relation to the employment relationship.

Contact the Employment Lawyers at DBH Law for Reputable Advice on Employment Agreements and Terminations

The experienced employment lawyers at DBH Law have extensive experience providing employees with advice and guidance when navigating the complexities of employment disputes, particularly in relation to employment agreements and terminations, such as wrongful dismissals. We work hard to provide our clients with individualized strategic and pragmatic legal solutions to resolve their disputes quickly and efficiently. To schedule a confidential consultation with a member of our employment law team, contact us online or by phone at 403-252-9937.